Whereas "National" is desirous of acquiring the right and license to manufacture, use, and/or sell "Typers" in accordance with the designs of the said "Shepard" and the disclosures in any and all applications for Letters Patent now on file or to be filed hereafter relating thereto and any and all Letters Patent granted thereon in the United States or countries foreign thereto, for the full term of such grants and any extensions or renewal thereof, and any and all inventions and improvements in "Typers" which may be made from1972 U.S. Tax Ct. LEXIS 184">*198 time to time in the future by the said "Shepard":

Now, therefore, be it known that in part consideration of the sum of Ten Thousand Dollars ($ 10,000.00) paid to him this day by The National Cash Register Company,173 U.S.P.Q. (BNA) 34">*38 receipt whereof is hereby acknowledged as an advance against royalties which may become due as hereinafter provided, said "Shepard", doing business under the name of "Shepard Laboratories", as aforesaid, does hereby grant to the said "National", its successors and assigns, a non-exclusive license under said applications for Letters Patent and Letters Patent of the United States and countries foreign thereto and relating to "Typers" as now manufactured by him, and any inventions and improvements made or acquired hereafter by him and relating to "Typers"; and

57 T.C. 600">*606 In further consideration for the rights and licenses hereby granted, "National" agrees to pay to the said "Shepard" a royalty of Five Per Cent. (5%) based on the selling price of each "Typer" manufactured and sold by it in accordance with the license granted hereby, it being understood that should "National" choose to enclose a "Typer" so manufactured by it in a single enclosing casing with other units, the 1972 U.S. Tax Ct. LEXIS 184">*199 royalty herein agreed to shall be based only on the "Typer" unit. * * *

* * * *

"Shepard" agrees that within thirty days (30 days) from the date of this License Agreement he will furnish "National" with a complete, accurate, and up-to-date set of drawings of said "Typer", including all of its parts and components, and will from time to time, as "National" may require in order to manufacture such "Typers", furnish such information and guidance as "National" or any of its authorized representatives may request.

A signed copy of the above agreement was forwarded to petitioner by Beust and, in an accompanying letter dated December 23, 1955, Beust stated in part as follows:

In accordance with our correspondence and telephone conversation, I am enclosing herewith for your files a signed copy of the license agreement of December 19, relating to your patent applications Serial Nos. 332,711 and 332,712, under which agreement this Company will have the right, if it desires, to manufacture "Typers" in accordance with your designs under the conditions outlined in the license agreement.

* * * *

We would appreciate your sending on the set of drawings provided for on the third page of the license1972 U.S. Tax Ct. LEXIS 184">*200 agreement as soon as you can do so, as we wish to study the entire situation from the standpoint of what it would mean should we decide ultimately to make the printers of this type.

Thereafter, petitioner sent to NCR some 350 drawings, designs, and blueprints which embodied the technical information necessary to manufacture the typers. Such drawings, designs, and blueprints were received by NCR on or about January 24, 1956. The patent applications referred to in the above-described agreement were never sent to NCR by petitioner nor did NCR ever request that such applications be delivered to it.

The above-described agreement between petitioner and NCR was prepared by NCR. The petitioner was not represented by legal counsel during the course of his negotiations with Beust nor was the above-described agreement explained to him by counsel.

On December 18, 1956, a patent issued with respect to petitioner's application, No. 332,712, relating to an intermittent motion device. On April 2, 1957, a patent issued with respect to petitioner's application, No. 332,711, relating to a hammer assembly for high-speed printers. Licenses with respect to such patents were granted by petitioner to1972 U.S. Tax Ct. LEXIS 184">*201 Radio Corp. of America, Standard Electric Lorenz of Germany, and British Tabulating Machine Co. of England. By means of 57 T.C. 600">*607 cross-agreement Radio Corp. of America permitted the use of its license to English Electric Corp.

Subsequent to the above-described agreement between petitioner and NCR the petitioner manufactured and sold typers to, among others, Radio Corp. of America, Sylvania, General Electric, Bank of America, the Atomic Energy Commission, Rice Institute, Brookhaven, and the University of Chicago.

Around the beginning of 1958 NCR had reached the point where it was ready to begin manufacturing petitioner's typer as a part of its data processer. At this time, John J. Callahan, a patent attorney who had been employed by NCR in November 1957, reviewed the agreement between petitioner and NCR to determine what might be payable to petitioner under its terms. In order to clarify NCR's obligations under such agreement, Callahan initiated negotiations with petitioner which resulted in a supplemental agreement between petitioner and NCR dated February 25, 1959. ² The supplemental agreement provided in part as follows:173 U.S.P.Q. (BNA) 34">*39

AGREEMENT SUPPLEMENTAL TO LICENSE AGREEMENT OF DECEMBER1972 U.S. Tax Ct. LEXIS 184">*202 19, 1955

* * * *

Whereas, said "Shepard" and said "National" are desirous of defining and modifying their respective rights under the License Agreement entered into the nineteenth day of December 1955, between said "Shepard" and said "National", and hereinafter referred to as "License Agreement":

Now, therefore, it is agreed by said "Shepard" and said "National" that this Agreement, hereinafter referred to as "Supplemental Agreement", be a part of said "License Agreement".

* * * *

It is further agreed by said "Shepard" and said "National" that:

* * * *

4. The following royalty is substituted for the royalty rate of Five Per Cent. (5%) set forth in said "License Agreement" and is payable by "National" to "Shepard" on "Typers" manufactured and sold by "National" in accordance with the license granted by said "License Agreement" and modified by this "Supplemental Agreement":

First one hundred (100) "Typers", Thirteen Hundred and Seventy-Five Dollars ($ 1,375.00) for each "Typer".

Next twenty-five (25) "Typers", One Thousand Dollars ($ 1,000.00) for each "Typer".

Subsequent "Typers", Five Hundred Dollars ($ 500.00) for each "Typer".

5. The license granted under said "License Agreement" 1972 U.S. Tax Ct. LEXIS 184">*203 and modified by this "Supplemental Agreement" shall in all events become a fully-paid irrevocable license, with no further royalties payable, after April 2, 1974.

57 T.C. 600">*608 6. The license granted by said "License Agreement" and modified by this "Supplemental Agreement" may be terminated by "National" at any time after November 10, 1968. This privilege of termination shall be exercised by giving "Shepard" written notice of "National's" election to terminate at least sixty (60) days in advance. In the event that "National" exercises this optional termination privilege, it is expressly understood and agreed that any royalties paid by "National" up to the date of such termination shall constitute full payment for all property, such as information and designs, which "National" may have acquired under said "License Agreement" and this "Supplemental Agreement" and which does not form an invention defined by a subsisting claim of a "Shepard" patent, and "National" shall be free to use such property as it desires without further payment to "Shepard". After such exercise of this optional termination privilege and until April 3, 1974, "National" shall be in the same position as any other 1972 U.S. Tax Ct. LEXIS 184">*204 unlicensed party with respect to any "Shepard" patent under which "National" had a license prior to the date of such termination.

On April 1, 1965, the petitioner and NCR entered into another supplemental agreement. Such agreement provided in part as follows:

SECOND SUPPLEMENTAL AGREEMENT

* * * *

Whereas SHEPARD and NATIONAL have heretofore entered into a License Agreement dated December 19, 1955, and a Supplemental Agreement dated February 5, 1959, with respect to Typers ("Typers" being defined in said License Agreement); and

Whereas NATIONAL is considering the sale to original equipment manufacturers (hereinafter referred to as "OEM") of1972 U.S. Tax Ct. LEXIS 184">*205 less than complete Typers (said less than complete Typers hereinafter being referred to as "OEM Typers"); and

Whereas it is desirable for NATIONAL, from the standpoint of lower costs in the manufacture of Typers and parts thereof, to produce them in larger quantities than heretofore; and

Whereas both parties are desirous of benefiting from said lower costs through increased numbers of sales; and

Whereas it is desirable from NATIONAL'S standpoint in paying royalties to SHEPARD on its OEM business in such OEM Typers to redefine the royalty specified in said License Agreement, but only with respect to said OEM Typers.

Now, therefore, it is agreed by SHEPARD and NATIONAL as follows, that:

1. This Second Supplemental Agreement shall become a part of said License Agreement dated December 19, 1955 and said Supplemental Agreement dated February 5, 1959.

2. The fixed dollar royalty called for in said Supplemental Agreement, i.e. the amount of $ 500.00 per Typer, will no longer apply to the manufacture and sale of OEM Typers to OEM manufacturers.

3. In place of said fixed dollar royalty a173 U.S.P.Q. (BNA) 34">*40 royalty of five percent (5%) shall be paid by NATIONAL to SHEPARD for each OEM Typer sold by NATIONAL to1972 U.S. Tax Ct. LEXIS 184">*206 OEM manufacturers, said royalty to be based on the net selling price, after quantity discounts, of each OEM Typer manufactured and sold by NATIONAL in accordance with the license granted by said License Agreement and said Supplemental Agreement. In no event shall a royalty greater than the amount of $ 500.00 per OEM Typer be payable by NATIONAL to SHEPARD.

57 T.C. 600">*609 4. The parties intend that an OEM Typer shall comprise the electro-mechanical and mechanical parts, or at least a substantial portion of said parts, but shall not include the electronics for a Typer. In computing such royalty on each OEM Typer, the net selling price used shall never be less than $ 4,500.00 per Typer.

By letter dated September 4, 1968, NCR notified petitioner of its election to terminate the above agreements as of November 11, 1968, in accordance with the provisions of paragraph 6 of the supplemental agreement of February 25, 1959.

Such letter provided in part as follows:

We are notifying you at this time of our election to terminate the above agreements, since, as of the effective date of termination (i.e., November 11, 1968), as set forth in the above-referenced Paragraph 6, there is no question that1972 U.S. Tax Ct. LEXIS 184">*207 you will have been fully paid for all property which The National Cash Register Company may have acquired from you. In addition, we have determined that printing equipment to be manufactured and sold by us, after the termination of these agreements, is not believed to be covered by any claim of a patent under which we are now licensed.

Since November 11, 1968, NCR has continued to manufacture the typer, embodying the technology furnished by petitioner under the above-described agreements, as a part of its Model 304 Computer. However, in accordance with its letter wherein it elected to terminate such agreements, it has made no further payments to petitioner since that time.

During the taxable years 1965, 1966, and 1967 the petitioner received the respective amounts of $ 77,020, $ 62,995.70, and $ 145,426.90 pursuant to his agreements with NCR. On petitioner's returns for such years, those amounts were reported as long-term capital gains from the "sale of patent rights." ³ Such returns were prepared by an accountant who characterized the amounts in the manner described above on the basis of his reading of the agreements between petitioner and NCR.

1972 U.S. Tax Ct. LEXIS 184">*208 In the notice of deficiency the respondent determined that the amounts received by petitioner from NCR did not constitute long-term capital gains from the sale of patent rights because such amounts were not received "by reason of a sale or exchange of patent rights, or any other property interest, and that any alleged property interest involved in your transaction with the National Cash Register Company was held for sale in the ordinary course of your business."

OPINION

The parties have agreed that both the technology and the patents involved herein were held by petitioner for a period in excess of 57 T.C. 600">*610 6 months and that they were not held by him primarily for sale to customers in the ordinary course of his trade or business. Thus, the issue for decision is a relatively narrow one, namely, whether, as contended by respondent, the amounts received by petitioner constituted royalty payments pursuant to a nonexclusive license which the petitioner granted to NCR with respect to certain patents or whether, as contended by petitioner, such amounts constituted payments for technology which he sold to NCR. There does not appear to be any disagreement that if the position urged by the1972 U.S. Tax Ct. LEXIS 184">*209 petitioner is the correct one the amounts received by him properly constituted capital gains (see United States Mineral Products Co., 52 T.C. 177">52 T.C. 177, and cases cited therein) or that if the respondent's position prevails such amounts constituted ordinary income as determined.

At the outset we must consider the respondent's contention that the petitioner's position that the disputed amounts constituted payments by NCR for the purchase of technology is contrary to the express terms of petitioner's written agreement with NCR and that we should therefore give no effect to any testimony directed to such position. In this regard the respondent calls attention to the case of Commissioner v. Danielson, (C.A. 3) 378 F.2d 771, reversing 44 T.C. 549">44 T.C. 549, certiorari denied 389 U.S. 858">389 U.S. 858. Inasmuch as an appeal in the instant proceeding would lie to the Court of Appeals for the Third Circuit, we will follow its decisions herein where it is appropriate to do so under the principles established in Jack E. Golsen, 54 T.C. 742">54 T.C. 742, affd. (C.A. 10) 445 F.2d 985.1972 U.S. Tax Ct. LEXIS 184">*210

The issue in Danielson involved the vexing problem encountered by taxpayers when a business is sold, namely, whether a portion of173 U.S.P.Q. (BNA) 34">*41 the purchase price is to be allocated to a covenant not to compete on behalf of the seller with the result that such portion is ordinary income to him and deductible by the purchaser over the lifetime of the covenant, or whether such portion is to be allocated to the purchase of goodwill with the result that such portion is capital gain to the seller and not deductible by the purchaser. Because of these antithetical tax consequences to the parties involved, the manner in which the transaction is thereafter treated by such parties for tax purposes often does not comport with the terms utilized by them in their agreements of sale. ⁴

1972 U.S. Tax Ct. LEXIS 184">*211 57 T.C. 600">*611 In Danielson the taxpayers were the prior stockholders of a company who, in the agreements by which their stock was sold, had expressly allocated portions of the consideration received by them to covenants not to compete. Thereafter, they reported the full consideration as capital gains and such treatment was challenged by the respondent. In holding for the respondent the court ruled that a party to an agreement could dispute the respondent's construction thereof only by presenting evidence which would be admissible in an action between the parties to such agreement to alter such construction or by demonstrating the agreement to be unenforceable because of mistake, undue influence, fraud, or duress.

Here, both the petitioner and the respondent agree that the original and supplemental agreements between petitioner and NCR are to be read as one integrated agreement. Under this view it seems apparent to us that NCR received two things of potential value pursuant to such agreement, namely, the rights to manufacture under patents which related to certain aspects of petitioner's typer and the means to manufacture the typer itself, namely, the "complete, accurate, 1972 U.S. Tax Ct. LEXIS 184">*212 and up-to-date set of drawings of said 'Typer', including all of its parts and components." However, unlike the situation in Danielson, the agreement here involved makes no express allocation of consideration between the two. In this sense the agreement is ambiguous and we do not read Danielson as precluding the admission of extrinsic evidence, parol or otherwise, in such a situation. As stated by the court in Danielson:

it would be unfair to assess taxes on the basis of an agreement the taxpayer did not make [citation omitted]. Many factors may be relevant to the search for the agreement which the parties consciously made, including the business reality of the transaction. * * *

Indeed, because of such ambiguity, this appears to be the very situation contemplated by the court in Danielson where extrinsic evidence would be admissible in an action between the parties to the agreement themselves.

In construing agreements, the primary task of the court is to ascertain and, where possible, to effectuate the mutual intention of the parties. Pickren v. United States, (C.A. 5) 378 F.2d 595; Taylor-Winfield Corp., 57 T.C. 205">57 T.C. 205;1972 U.S. Tax Ct. LEXIS 184">*213 Edward W. Reid, 50 T.C. 33">50 T.C. 33. While the language used by the parties in their agreement is significant, the label borne by the agreement is not determinative of its legal characterization. 57 T.C. 205">Taylor-Winfield Corp., supra, and cases cited therein. And, where the agreement is ambiguous, great weight is to be accorded to the construction which the parties themselves place upon it as evidenced by their actions. Pickren v. United States, supra, and cases cited therein.

57 T.C. 600">*612 Here, the original agreement between petitioner and NCR was labeled a license agreement. However, as indicated hereinabove it is clear that NCR received two things of potential value pursuant to such agreement. The agreement indicated NCR's desire to acquire the right to manufacture the typer in accordance with the petitioner's designs and any disclosures in the patent applications which he had filed. The agreement further provided that petitioner would furnish NCR with the designs of the typer and that NCR would have a nonexclusive license under the patent applications. Thus, it seems clear that NCR obtained both1972 U.S. Tax Ct. LEXIS 184">*214 a nonexclusive license with respect to petitioner's patent applications and the designs with which to manufacture the typer. And, though the consideration was referred to in terms of royalty, no allocation thereof was made between the two.

Turning our attention to the supplemental agreements between petitioner and NCR, as well as to the other evidence of record, it is our opinion that the amounts received by petitioner during the years in question were intended to be consideration for the technology which petitioner transferred to such company, rather than for any license under the patents173 U.S.P.Q. (BNA) 34">*42 which later issued. We are led to this conclusion for a number of reasons.

First, the information contained in the patent applications which related to certain aspects of petitioner's typer would not have enabled one to successfully manufacture the typer. Indeed, the parties agree that the technological development of the typer was not completed until about 1 1/2 years after the patent applications were filed. Moreover, as testified by petitioner, when Radio Corp. of America subsequently attempted the development of a typer on the basis of the patents which issued, such development was not successful.

1972 U.S. Tax Ct. LEXIS 184">*215 Second, NCR needed to obtain the means necessary to the successful manufacture of a typer. It is not disputed that given the time and money NCR could probably have ultimately developed such means, utilizing as models the typers it purchased from petitioner in July 1955. It is equally apparent that such development would probably have delayed the final development of its Model 304 Data Processer, the computer in conjunction with which the typer was to be utilized. Thus, the acquisition by NCR of petitioner's technology obviated the need to incur the expenses of developing similar technology on its own behalf and it achieved the competitive advantage of permitting the earlier completion of its data processer.

Finally, the actions of the parties, inter se, subsequent to the time of their original agreement have been consistent with the view that the disputed amounts related to the technology, rather than any license under the patent applications.

57 T.C. 600">*613 Soon after the original agreement was entered into NCR requested that petitioner send it the technology here involved and he immediately complied with such request. NCR never requested that the information contained in petitioner's1972 U.S. Tax Ct. LEXIS 184">*216 patent applications, which were merely pending at the time of such agreement and therefore not otherwise available to it, be so delivered. See 35 U.S.C. sec. 122.

The original agreement between the parties was amended in February 1959 by a supplemental agreement which provided a more definite base to which the royalty rate should apply and also provided both an ultimate and an optional termination date when such payments might cease. The need to clarify the royalty rate base is understandable in view of the fact that NCR was about to begin the commercial production of the typer as a part of its data processer. As testified by John J. Callahan, a patent attorney in NCR's employ who negotiated the supplemental agreement on its behalf:

The original agreement, the royalty was five percent based on the selling price of each typer.

We found it difficult to determine the amount of the royalty due. The term typer wasn't in my mind, adequately set forth in the original agreement on how much equipment this five percent may be due on. So that was one of the reasons why we negotiated negotiations with Shepard in order to arrive at something that may be1972 U.S. Tax Ct. LEXIS 184">*217 definite and more easily accountable for.

The reasons underlying the provisions with respect to the termination dates of the royalty payments are somewhat less apparent. On brief the respondent urges that the ultimate termination date adopted in such agreement, namely, April 2, 1974, was merely the expiration date of one of the patents here involved and was necessary because the original agreement contained no provision with respect to the termination of payments for the use of such patents. He does not suggest why such agreement also made provision for an optional termination date, namely, November 10, 1968, which significantly preceded the expiration dates of the patents here involved.

In construing agreements where no provision has been made with respect to the termination of payments called for by such agreements, the courts have held that where such an agreement relates to a license under a patent or a copyright, the expiration of the patent or of the copyright constitutes an implied termination date. See Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc., (S.D.N.Y.) 178 F. Supp. 655">178 F. Supp. 655, affirmed per curiam (C.A. 2) 280 F.2d 197,1972 U.S. Tax Ct. LEXIS 184">*218 and cases cited therein. However, the above-cited case clearly indicates that no such termination date may be implied where such an agreement relates to a trade secret, even when the subject of such an agreement becomes public knowledge. There, in construing an agreement which related to a 57 T.C. 600">*614 trade secret which had become public knowledge, the court stated in part as follows:

The considerations which lead the courts in the patent and copyright cases cited to limit the obligation to the term of the patent or copyright have no application here. * * *

In the patent and copyright cases the parties are dealing with a fixed statutory term and the monopoly granted by that term. This monopoly, created by Congress, is designed to preserve exclusivity in the grantee during the statutory term and to173 U.S.P.Q. (BNA) 34">*43 release the patented or copyrighted material to the general public for general use thereafter. This is the public policy of the statutes in reference to which such contracts are made and it is against this background that the parties to patent and copyright license agreements contract.

Here, however, there is no such public policy. The parties are free to contract with respect to a1972 U.S. Tax Ct. LEXIS 184">*219 secret formula or trade secret in any manner which they determine for their own best interests. A secret formula or trade secret may remain secret indefinitely. It may be discovered by someone else almost immediately after the agreement is entered into. Whoever discovers it for himself by legitimate means is entitled to its use. [Citation omitted.]

But that does not mean that one who acquires a secret formula or a trade secret through a valid and binding contract is then enabled to escape from an obligation to which he bound himself simply because the secret is discovered by a third party or by the general public. I see no reason why the court should imply such a term or condition in a contract providing on its face that payment shall be coextensive with use. To do so here would be to rewrite the contract for the parties without any indication that they intended such a result.

In view of the above, if NCR's obligation to make payments under the original agreement related to the patents here involved, there was no need to provide, as suggested by respondent, that such payments would cease when such patents expired, because such a limitation would have been implied in the original1972 U.S. Tax Ct. LEXIS 184">*220 agreement itself.

On the other hand, if NCR's obligation to make payments under the original agreement were construed as relating to the technology which petitioner transferred to it, rather than to any license under patents, NCR might well have been liable to make such payments for as long as it manufactured the typer inasmuch as the original agreement made no provision with respect to the termination thereof. To preclude such a result seems, to us, clearly to be the reason why the supplemental agreement provided for the optional termination date.

In this respect the petitioner testified to the effect that at the time the original agreement was entered into it was both his understanding and the understanding of Carl Beust, then the head of NCR's patent department, that the payments to be made by NCR would be completed after a number of years, but that they neglected to include any provision with respect thereto in the original agreement. He further testified to the effect that this was the reason why NCR instigated the negotiations which culminated in the supplemental agreement.

57 T.C. 600">*615 Callahan's testimony in this respect was to the effect that one of the reasons he initiated1972 U.S. Tax Ct. LEXIS 184">*221 the negotiations which culminated in the supplemental agreement was to clarify whether NCR's obligation to make payments under the original agreement related to the patent applications named therein or to the technology which petitioner had transferred to it; that this question as to NCR's obligation was not resolved in the supplemental agreement because it made no difference to NCR at that time as to what petitioner was being paid for, as long as he was being paid; and that if it were later resolved that NCR's obligation related to the technology which petitioner had transferred to it, NCR could cease making payments as of the optional termination date because the payments made prior to that date would have adequately compensated petitioner for such technology.

Thus, in view of the above, the mere fact that the parties felt that it was necessary to provide for the optional termination date in their supplemental agreement seems clearly attributable to the position maintained by petitioner, namely, that NCR's obligation to make payments related only to the technology rather than to any license under patents. If not we cannot conceive why, at that time, the petitioner would agree to1972 U.S. Tax Ct. LEXIS 184">*222 such an optional termination date which, because it preceded the expiration dates of the patents here involved by some 5 years, would so manifestly work to his pecuniary disadvantage. Moreover, the fact that NCR subsequently ceased its payments to petitioner pursuant to the optional termination provision clearly indicates that it shared the petitioner's view of its obligation. This seems particularly true in view of its continued manufacture of typers subsequent to the cessation of payments to petitioner but prior to the expiration of the patents here involved.

The respondent further contends that if the agreement between petitioner and NCR is viewed as relating to the technology which petitioner transferred to such company, rather than to the patents here involved, such agreement constituted at most a nonexclusive license of such technology and, hence, that the payments received by the petitioner thereunder represented ordinary income to him. In this respect the respondent argues, in effect, that in order to effectuate a sale of technology, rather than a mere license, the transferor must relinquish all the substantial rights of ownership in the technology; that the right to make173 U.S.P.Q. (BNA) 34">*44 1972 U.S. Tax Ct. LEXIS 184">*223 disclosure of the technology constitutes such a substantial right therein; that under the agreement between petitioner and NCR the petitioner retained the right to disclose the technology here involved; and that petitioner, in fact, did so disclose such technology by subsequently licensing others with respect to the patents 57 T.C. 600">*616 here involved and by manufacturing and selling several typers on his own behalf.

We agree with respondent that in order to effectuate a sale of technology the purported seller must relinquish all of the substantial rights of ownership in such technology and that the right to make disclosure thereof constitutes such a substantial right. See 52 T.C. 177">United States Mineral Products Co., supra. We cannot agree, however, that petitioner retained any substantial rights in the technology here involved. The language used by the parties in the optional termination provision of their first supplemental agreement indicates to us that petitioner conveyed to NCR all of the substantial rights of ownership in such technology. Such language was to the effect that the royalties paid by NCR prior to the optional termination date would constitute1972 U.S. Tax Ct. LEXIS 184">*224 full payment for the technology and that NCR was free to use such technology as it desired. And, as discussed hereinabove, the optional termination provision was the operative termination provision in the parties' agreement.

We do not, therefore, agree that the petitioner retained any rights with respect to the disclosure of the technology. By granting NCR the freedom to use the technology as it desired indicates to us that petitioner, thereby, conveyed to NCR the freedom to disclose the technology to others and that, thereafter, such company could have prevented the unauthorized disclosure of such technology. See E. I. DuPont De Nemours & Co. v. United States, (Ct.Cl.) 288 F.2d 904. Moreover, there is no provision in the parties' agreement which we could construe as reserving any such rights to petitioner. Compare, 57 T.C. 205">Taylor-Winfield Corp., supra.His testimony was to the effect that at the time the original agreement was entered into he promised Beust that he would not disclose such technology to anyone else and we have no reason to doubt him in this respect. Furthermore, we do not believe that he subsequently 1972 U.S. Tax Ct. LEXIS 184">*225 disclosed such technology as argued by respondent. As pointed out hereinabove, the technology necessary to the manufacture of the typer was not revealed by the patents here involved. Thus, the subsequent licensing of others with respect to such patents did not effectuate a disclosure of such technology.

Nor, in our opinion, did the subsequent manufacture and sale of several typers by petitioner effect a disclosure of the technology necessary to the manufacture of such typers.^{51972 U.S. Tax Ct. LEXIS 184">*229 1972 U.S. Tax Ct. LEXIS 184">*230} It seems, to us, fundamental 57 T.C. 600">*617 that the mere sale of an item, the manufacture of which is accomplished by means or methods or processes which are not already known to the general public, does not constitute the disclosure of such means or methods or processes. In an early and often-cited case, the Court of Appeals of New York held that the sale of a pump did not constitute the disclosure of the designs from which the pump was manufactured. Tabor v. Hoffman, (1889) 118 N.Y. 30">118 N.Y. 30, 23 N.E. 12">23 N.E. 12. There the court stated in part as follows:

It is conceded by the appellant that, independent of copyright or letters patent, an inventor or author has, by the1972 U.S. Tax Ct. LEXIS 184">*226 common law, an exclusive property in his invention or composition, until by publication it becomes the property of the general public. This concession seems to be well founded, and to be sustained by authority. [Citations omitted.] As the plaintiff had placed the perfected pump upon the market, without obtaining the protection of the patent laws, he thereby published that invention to the world, and no longer had any exclusive property therein. [Citations omitted.] But the completed pump was not his only invention, for he had also discovered means, or machines in the form of patterns, which greatly aided, if they were not indispensable, in the manufacture of the pumps.173 U.S.P.Q. (BNA) 34">*45 This discovery he had not intentionally published, but had kept it secret, unless, by disclosing the invention of the pump, he had also disclosed the invention of the patterns by which the pump was made. The precise question, therefore, presented by this appeal, as it appears to us, is whether there is a secret in the patterns that yet remains a secret, although the pump has been given to the world. * * * Can it be truthfully said that this secret [namely, the size and the shape of the patterns] can be learned1972 U.S. Tax Ct. LEXIS 184">*227 from the pump, when experiments must be added to what can be learned from the pump before a pattern of the proper size can be made? As more could be learned by measuring the patterns than could be learned by measuring the component parts of the pump, was there not a secret that belonged to the discoverer, until he abandoned it by publication, or it was fairly discovered by another? If a valuable medicine, not protected by patent, is put upon the market, any one may, if he can by chemical analysis and a series of experiments, or by any other use of the medicine itself, aided by his own resources only, discover the ingredients and their proportions. If he thus finds out the secret of the proprietor, he may use it to any extent that he desires without danger of interference by the courts. But, because this discovery may be possible by fair means, it would not justify a discovery by unfair means, such as the bribery of a clerk who, in the course of his employment, had aided in compounding the medicine, and had thus become familiar with the formula. The courts have frequently restrained persons who have learned a secret formula for compounding medicines, beverages, and the like, while1972 U.S. Tax Ct. LEXIS 184">*228 in the employment of the proprietor, from using it themselves, or imparting it to others to his 57 T.C. 600">*618 injury; thus, in effect, holding as was said by the learned general term, "that the sale of the compounded article to the world was not a publication of the formula or device used in its manufacture." [Citations omitted.]

The fact that one secret can be discovered more easily than another does not affect the principle. Even if resort to the patterns of the plaintiff was more of a convenience than a necessity, still, if there was a secret, it belonged to him, and the defendant had no right to obtain it by unfair means, or to use it after it was thus obtained. We think that the patterns were a secret device that was not disclosed by the publication of the pump, and that the plaintiff was entitled to the preventive remedies of the court. While the defendant could lawfully copy the pump, because it had been published to the world, he could not lawfully copy the patterns because they had not been published, but were still, in every sense, the property of the plaintiff, who owned not only the material substance, but also the discovery which they embodied. * * *

In view of all of the above it is our conclusion that the amounts received by petitioner from NCR during the years in question represented payments for the technology which he sold to such company. In so deciding we have given careful attention to the nature of the language utilized in the agreement before us. However, the candid and, in our opinion, consistent testimony of petitioner serves to resolve the ambiguities therein in his favor. Accordingly, petitioners are entitled to treat the disputed amounts as long-term capital gains.

Decision will be entered under Rule 50.